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INVESTIGATIONS

This chapter covers the following areas:


What is investigation
Role of investigating or reporting accountant
Classes of investigations
Scope of investigations
Stages of investigations

DEFINITION
An investigation may be defined as
inquiry into the financial affairs of
business, including the examination of
audited accounts for recent years and
current and estimated future position.

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ROLE OF INVESTIGATING
An investigating or reporting accountant is
required to report to the company that has
appointed him or in the case of a regulatory
body (eg: Bursa Malaysia or Ministry), to the
committee set up for that purpose.

CLASSES OF INVESTIGATIONS

Prospectus reports
Profit forecasts
Purchase of an unincorporated business
Purchase of shares in a private company or
partnership
Requests for loan
Investigations under statutes
Fraud

SCOPE OF INVESTIGATIONS
It varies considerably depending upon the:
Nature of the business concerned
Instructions from the client

STAGES OF INVESTIGATIONS
Receiving instructions from the client
Communicating with the auditors of the company
or business being investigated
Assessing the aims and probable scope of the
investigation
Obtaining background information, from both
client & outside sources
Deciding the outline of the report

STAGES OF INVESTIGATIONS .CONT.


Fact gathering
Drafting the report
Clearing the draft report with the company being
investigated
Typing/printing the final report
Discussing the final report with the client

REPORT ON PROFIT FORECAST


Preliminary considerations:
Time accountant should have adequate time in order to exercise
professional judgement as may be required and to prepare the report

Responsibility is confined to the accounting bases and calculations


for the forecasts and does not extend to the directors assumptions used to
prepare the forecasts.

Uncertainty accountant should not normallyundertake to review and

report on forecasts that relate to more than current and next accounting period

Directors responsibility directors are responsible for the

profit forecasts which may be disclosed and relied upon by external parties

DETAILED WORK
The accountant should consider the following in
the review of the forecasts:
General character & recent history of the cos business
Major accounting policies normally adopted & consistently applied
in preparing the accounts
Forecasts are consistent with the economic, commercial, marketing
and financial assumptions as stated by the directors
Frequency, reliability and degree of accuracy of the forecast
prepared by the management
Matters of general concern eg. Adequacy of provision for
foreseeable and contingencies

ACCOUNTANTS REPORT
Should be addressed to the directors, and should:
Indicate the work carried out
Ensure specific identification of the forecasts and documents that
refers to
Include a statement if the audit of estimated results of expired
periods has not been carried out
Express an opinion as to whether forecasts are properly
compiled on the basis of assumptions made by the directors and
figures presented are consistent with normal practices
Qualify report if appropriate such as substantial time restriction

PURCHASE OF UNINCORPORATED
BUSINESS
Engaged to provide advice on the viability of
acquiring an ongoing business
Have to study the engagement in detail
Proceed with investigation of detail examination
of accounts covering a period of one or more
years, subsequent adjustment and the
interpretation of those accounts.

GENERAL PROCEDURES

Decide on the numbers of years to be covered


Obtain copies of detailed accounts for each year to be examined
Note of any qualifications in the auditors report
Consider detailed information contained in accounts of each year,
together with supporting schedules and working papers
Making necessary adjustments
Consider possibilities of accounts to be manipulated
Redraft the accounts with necessary adjustments
Consider matters beyond accounts under review and cooperation of
the staff and existing auditors
Consider specific factors external to the accounts eg. Staff loyalty